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Thursday, January 24, 2008

Recession! Restitution! Resurrection?

An unexpected swift cooperation between the Democrat led US Congress and the White House forged a stimulus package worth $150 billion for giving the economy a shot in the arm. "It is there to strengthen the middle class, create jobs and turn the economy around" said House Speaker Nancy Pelosi.The same message was echoed by President George Bush from the White House. Up until late Thursday night, no official mention was made of the current US Recession, the "Slowdown" tag remained the term of careful choice.

In contrast, CNN's Richard Quest conducted a poll in Davos Switzerland among the world's top business leaders, and the "slowdown" opinions edged the "recession" camp slightly at 17-15; but doubts existed on whether the "slowdowners" were truly speaking their minds and opting instead to play it safe. Despite the Federal Reserve initiative of cutting interest rates, markets worldwide continue to experience "very volatile movements" which short term solutions may not be able to stem. The slight rally last Wednesday and Thursday provides no indication of permanent relief, and the stimulus package cannot be expected to produce a miracle.The stimulus plan, a consumer based approach, will work in an economic slowdown to pump prime the economy through consumer spending. In a recession, it is unlikely to succeed. Besides, the plan puts money in the hands of consumers from the government coffers, where the return by way of tax generation will at most be 20% of the amount provided. The 80% will still have to be accounted for as government borrowings and would be lumped under the burgeoning budget deficit. Currently, the deficit already exceeds $163 billion, excluding budget outlays for the war in Iraq and Afghanistan estimated to bring the deficit up to $250 billion. The Congressional Budget Office, a non-partisan organization that crunches budget data for lawmakers estimate that with the stimulus plan, the deficit can balloon to $350 billion.

The blind eye being given by the President and the US Congress to the "Recession" may be well meant, that is, to avoid panic and restore confidence. The personal and partisan political implications however, cannot be discounted. The Republicans certainly would not want it on their term to have caused a recession; and the Democrats would not want to be blamed for preventing one or contributing to the difficulties encountered by the citizens - especially in an election year. National Security implications may also be a factor as a weak economic situation could escalate enemy attacks to its front lines. However, the pretense posture adopted by US officials and the false hopes it compels Americans to cling to, could backfire to the point where no one is to be believed and confidence in the economy and the government in general would be in tatters.The US Recession is the first in the era of globalization, and it will have a global impact. The sub-prime mortgage crisis and housing downturn caused this situation. The money used to finance the mortgages came from savings from other nations borrowed by the US through its financial institutions. America did not save that money since they are not possessed with a saving orientation, only a spending one. And a voracious one at that. The restitution in part of taxes paid by its citizens for them to pump up the economy through spending will not repay savings obtained from other nations. Additional wealth will have to be created, and/or spending must be judiciously done and reduced.

The months between February and May will be critical for the US, since the checks will be received in late May or early June.The plan will not be in place for implementation till then, and the possibility that the amount may not be sufficient should the economy decline deeper in the interim exists; or if the plan, even if the situation fluctuates at present levels, would be enough to create a resurrection of the economy.

Six hundred dollars per taxpayer, $1200 for couples, $300 per child, and from $300 to $600 for those non-taxpayers who earned $3,000 in 2007 but paid for Social Security. One hundred sixteen million people will benefit, according to estimates. How far will this go if their debts rack up by the time the check arrives? How much will it extend the spending from June to December? How will the incoming President handle the deficit which could reach $400 billion?There is no doubt that the package will help, but skepticism as to its effectiveness is strong. The next US President therefore must address this concern decisively and effectively. The choices would be Mitt Romney, Rudy Giuliani, and the undeclared Presidential candidate Michael Bloomberg. Oh God! Heaven help America!

10 comments:

It doesn't sound too promising Durano !!!I know our new government will be playing catch up financially for years....and of course when they do we will more than likely lose them again ...I wish the voters had more foresight !!

Australia will not be hit very hard because of several trading partners in Asia, notably India and China. These will cushion the impact of the US Recession. Unless of course China is impacted, same with India, but these would be indirect effects. The direct ones will emanate from trades with the US. Thailand, South Korea, and Japan are also Australian partners, so not much to worry about.

My premises are based on the US budget deficit and their current wars. Four months for the checks to arrive and with doubtful effectiveness may not cut it. I could be wrong... I hope I am.

As it is, only Hillary Clinton and Michael Bloomberg stand a chance of turning it around. Bloomberg is a strict business magnate, Hillary is more political, so the best bet for ordinary people at this time is Hillary.

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About this Blog

Spitting vessels were part of the Asian cultures for many centuries, emanating from China to the Southeast Malay countries.
For all the many things that are difficult to swallow in this world that leave a bad taste in the mouth, here's a spittoon to expectorate it.

I am Durano Lawayan a.k.a. Brad Spit

My orientation is that of a management consultant. I am naturally drawn towards change for as long as it is sustainable and possesses real long term benefits. If we have to change by going back to basics like organic food, less transfat, zero carbon emissions, I'm all for it.

There are many things we have been made to accept, drummed into our brains since we were kids; that these were true, unchangeable, and permanent. Well nothing is permanent and anything can be changed. What was true before may be uncovered today for the phoniness that it was and is. I keep a questioning attitude and a persistent orientation, balanced by a positive outlook.

I love to laugh and enjoy life, and hope the pain brought about by what is wrong in this world is somehow diluted by this merriment.

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